An absolute anti-assignment clause in a material contract

The situation

A buyer was acquiring a wholesale bakery supplying commercial and retail customers across southern Ontario for $9,400,000. One customer, a national grocery chain, represented $6,100,000 of trailing annual revenue — 44% of the business. The assignment clause in that supply agreement was drafted to be absolute: the agreement could not be assigned “in whole or in part, whether by operation of law or otherwise”, without the customer’s prior written consent, “such consent to be granted or withheld in [the customer's] sole discretion.” A separate change-of-control clause deemed a transfer of more than 50% of the supplier’s shares, or substantially all of its assets, an assignment for the same purpose.

The problem

The buyer’s first instinct was the usual one: structure the deal as a share purchase, since an assignment clause on its face restrains the contract from moving, not the shares of the company that holds it. The change-of-control clause closed that route specifically — it deemed the share transfer itself an assignment, so the same consent requirement applied whether the deal was structured as an asset sale or a share sale. There was no structuring workaround, because the clause had been drafted with exactly that workaround in mind.

The buyer’s counsel contacted the grocery chain’s procurement team for consent five weeks before the planned closing. The answer took eleven weeks. During that time, procurement raised no genuine performance or credit concern about the buyer — a well-capitalized, experienced operator in the same sector — and used the delay instead to negotiate a 2% price reduction on the supply contract as an unstated condition of consent.

The numbers

$6,100,000 of annual revenue at stake, on a contract representing 44% of the target’s business. The 2% price concession costs the combined business about $122,000 a year, forward, for as long as the contract runs. Eleven weeks of delay added roughly $38,000 of carrying legal and advisory cost to the transaction before the consent was in hand.

The rule that decided it

No statute governs an assignment or change-of-control restriction in an ordinary commercial supply contract. Ontario law implies a reasonableness qualifier into a very specific category of contract — leases — and nowhere else. The Commercial Tenancies Act provides that in a covenant against assigning or subletting, “such covenant, condition or agreement shall, unless the lease contains an express provision to the contrary, be deemed to be subject to a proviso to the effect that such licence or consent is not to be unreasonably withheld.” That default rule is confined, by the statute’s own words, to a covenant “in every lease” against “assigning, underletting, or parting with the possession, or disposing of the land or property leased.” It does not touch a commercial supply agreement, and a landlord can still contract out of it — “unless the lease contains an express provision to the contrary.” See landlord consent to assignment for that lease-specific rule.

Outside a lease, freedom of contract governs, and a clause this absolute means exactly what it says. Consent may be withheld for any reason, no reason, or a purely commercial reason — extracting a price concession is not a breach of anything, because nothing in the contract or in general contract law requires the customer to act reasonably. The only lever the statute book gives a party in this position sits somewhere else entirely: a court can override even an absolute anti-assignment clause under s. 84.1(1) of the Bankruptcy and Insolvency Act, but only on an application by a trustee, and only where the assignor is bankrupt or the subject of a formal insolvency proceeding — see the contract the court assigned without consent. This was a solvent seller and a willing buyer; that power was never available, and the clause governed on its own terms from the first day of diligence to the last.

One more statute is worth checking and ruling out rather than assuming away: the Competition Act’s civil provisions reach a refusal to supply and an abuse of a dominant position, not a customer’s use of its own consent right on a contract it is a party to. The grocery chain was not refusing to buy from anyone or excluding a competitor from a market; it was bargaining hard, as the counterparty to the very contract being assigned, over terms on which it would agree to the assignment. That is ordinary commercial leverage inside a bilateral relationship, not conduct the Act’s market-wide provisions are built to reach.

The outcome

The buyer paid the 2% concession rather than lose the contract or delay the deal further, and closed with the grocery chain’s written consent in hand. The purchase agreement was amended to hold back $150,000 of the purchase price, released to the seller only once consent was confirmed on terms no worse than a defined threshold — a mechanism that gave the buyer a partial offset if the customer had used the leverage to extract something larger.

What it would have cost otherwise

Consent could have been refused outright, and the customer would have committed no breach in refusing it. Losing the contract entirely would have removed 44% of revenue from a business the buyer had already priced at $9,400,000 against that revenue base — a fact pattern that would have forced a renegotiation of the entire purchase price, not just a 2% adjustment on one contract, or a walk-away.

The tell

The tell was on the first read of the material contracts schedule, weeks before signing: an assignment clause with a “sole discretion” consent standard, on the single largest customer contract, is a fact that belongs in the negotiation of price and closing conditions before signing — not a mechanic to be solved after signing, once the seller has already agreed to a price and the buyer has already lost the leverage that comes with being able to walk.

Takeaways

• • An absolute, sole-discretion consent-to-assignment clause in a commercial contract is enforceable exactly as written — there is no statutory reasonableness backstop outside a lease.
• • A change-of-control clause defined broadly enough catches a share deal structured specifically to avoid an assignment consent problem — check both clauses together, not the assignment clause alone.
• • Flag an absolute consent clause on a material contract at the start of diligence, not at closing, when the seller still has an interest in helping secure the consent.
• • A counterparty with no genuine performance concern can still use a consent requirement as commercial leverage — that is not a breach of the contract, because the contract does not require reasonableness.
• • A price holdback tied to the terms on which consent is actually obtained gives the buyer some protection against a counterparty using the requirement opportunistically.

Sources

• • No statute governs an assignment or change-of-control restriction in an ordinary commercial supply contract; it is enforced as written under general contract law.
• • Commercial Tenancies Act, R.S.O. 1990, c. L.7, s. 23(1) — the reasonableness qualifier implied into a covenant against assignment, but only in a lease, and only absent an express provision to the contrary. Cited to show the boundary of the rule, not to apply it — this was not a lease.
• • Treadstone Academy — the contract the court assigned without consent — the one route around an absolute anti-assignment clause, available only in a formal insolvency proceeding on a trustee’s application under BIA s. 84.1(1). Not available here; this was a solvent, voluntary sale.
• • Treadstone Law — the assignment clause in an Ontario business sale agreement and change-of-control clauses in an Ontario share purchase.
• • Treadstone Academy glossary — assignment clause, change-of-control clause and landlord consent to assignment.